Tough times loom for the economy

THERE is probably not much that can be said to console the party that comes second in a British General Election, but for what it is worth most economic pundits think that just as 1997 was a good one to win, this might turn out to be quite a good election to lose.

It was like that in 1992. The economic downturn then - the combination of the housing crash, huge unemployment and the Exchange Rate Mechanism debacle, all of which followed closely on John Major's surprise victory in April - were the reason the Conservative Party lost its reputation for economic competence.

No one is predicting that degree of turmoil this time round. Not short term, anyway. But looking further out, all the economic forecasters say that the next few years will be more difficult than the last four or five and the only difference between the experts is their ranking on the gloomometer. They range from the mildly anxious to the positively suicidal.

There is no secret about what worries them. The housing market is flat. Consumers are having to curb their spending. More tax increases are likely. Sterling is overvalued and when it falls it will fuel inflation and probably force interest rates up. All around there are growing signs that people cannot manage the debts they have taken on and companies from MG Rover to Marconi cannot win new orders.

Less money sloshing around in the economy means leaner times for everyone - and those lean times could easily translate into more unemployment, more forced selling of houses and a powerful feeling affecting everybody that they are not as well-off and secure as they thought they were.

And all this is before we import trouble from overseas in whatever form it might come - a collapse of the dollar or a slowdown in China being the favourites, either of which would curb the growth in world trade.

What gives credence to the pessimists are that all these pressures are already in the system - the housing market is flat, Government spending is too high - and well understood by Gordon Brown and Tony Blair.

They also go a long way to explaining why the Prime Minister was so keen to call the election early and take the risk that anger over Iraq had not gone away. His greater fear was that if he had delayed, even until the autumn, the weakness in the economy might be more obvious to the voters. And what electoral appeal would Labour have, shorn of its mantle of economic competence?

But we have also to maintain a sense of proportion. As a nation we take a masochistic delight in imagining bad times just around the corner. This, and the fact that most City economists are bearish, is probably a good reason to believe the opposite.

Economists usually get things wrong and City economists who swing one way or the other are often blown by the winds from their inhouse trading departments rather than from any great new analytical insight.

When it comes to track records, Gordon Brown and the Treasury have proved consistently more optimistic and more accurate than their critics. Logic and history both suggest we should give some credence to their view that it will all turn out right in the end.

It is worth noting too that the National Institute for Economic and Social Research, perhaps the most authoritative independent economic think-tank in the country, has just described Labour's handling of the economy so far as 'pretty good'.

The other thing worth saying is that the further out the economic forecast, the less reliable it is. Commentators are worried less about the immediate outlook than about where we will be in three years' time.

But a lot can happen between now and then. The Chancellor could boost national morale considerably by launching a major programme of tax simplification, perhaps moving towards a flat-rate system. He could reinvigorate industry and commerce by working actively to rebuild Britain's reputation as the place to do business - investing in transport and infrastructure, cutting back on regulation and doing more to promote flexibility. And he could rein back on his spending programme until he is sure he is getting 100p of value for every £1 spent.

No one is saying economic growth will come to a halt, so we might yet pleasantly surprise ourselves at how comfortable things continue to be.